Former IRS Commissioner Urges Congress to Expand Information Banks Report to the IRS
Former Internal Revenue Service (IRS) Commissioner Charles O. Rossotti, who served under Presidents Clinton and Bush, recently published an op-ed in Time Magazine highlighting the need for banks to expand the amount of information they report to the IRS regarding accounts held by taxpayers. Such a proposal could save billions by helping to close the tax gap, and is currently being considered as a partial offset as part of the Build Back Better reconciliation plan.
The federal government collected $630 billion less in tax revenue than it was legally owed in 2019, which Rossotti points out is a larger amount than the collective tax revenue paid by the bottom 90 percent of earners. A large part of this “tax gap” comes from non-wage income earned by wealthy individuals through business partnerships and other ventures, which can be unreported or underreported as it relies on taxpayers accurately reporting all of this income to the IRS.
Rossotti explains that the proposal Congress is currently considering, which was included in President Biden’s FY 2022 budget request, would require banks to add two pieces of basic information – total deposits and total withdrawals – to annual reports they already send to the IRS and taxpayers.
Having this information would make it easier for the IRS to identify unreported or underreported income, as well as deter wealthier taxpayers from attempting to misreport income in the first place. The Treasury Department estimates this proposal could increase revenue by $460 billion over 10 years, all without raising tax rates.
Rossotti addresses privacy concerns by pointing out that there are similar laws already on the books that require banks to report information regarding taxpayer accounts to the IRS, specifically when an account earns $10 or more in interest. In this instance, the information reported to the IRS results in fewer unnecessary audits of taxpayers whose filings match what was actually paid.
As currently written, the proposal would not apply to accounts with less than $600 in combined total withdrawals and deposits for the year. However, Democratic leadership has indicated it might consider raising the threshold to $10,000 and exempting regular wage transactions to better target wealthy individuals and prevent low-income taxpayers from being unfairly burdened.
Rossotti concludes with one last plea for action:
“The Administration’s plan to fill the hole in reporting of income is long-overdue and central to ensuring higher income earners pay the taxes they owe. This is a once-in-a-generation opportunity to foster tax fairness. Let’s collect taxes from people who don’t pay what they owe before we raise taxes on everyone else.”
Read the full op-ed here.